John Deere: Cultivating Success

03 February 2017

When John Deere comes to mind it’s hard not to imagine the iconic green and yellow tractors hard at work in the fields. Power, agility, looks … it’s everything a farmer needs and wants. From tractors, harvesters, combines and the countless kinds of farm implements that they tow and operate, to lawn and construction equipment, Deere and Co. has a wide and diverse variety of products that have a reputation of getting almost any job done.

Although green and yellow might be its colors, Deere and Co. is truly red, white and blue. Based in the American heartland state of Illinois, Deere and Co. is the largest agriculture machinery company in the world.

Deere and Co. ranks 97th on the Fortune 500, and 46th on the worlds most admired companies. It has operations in over 52 countries and employs over 67,000 workers.

Why John Deere is Well Positioned

The long-term demand for key food inputs, such as wheat, corn and oil seeds is only going to grow as the world continues to grow. John Deere is poised to capture this growth and supply farmers with the new equipment they need to manage their costs.

By 2050 the world population is projected to reach 9.7 billion people and the world’s agriculture industry must feed an ever-increasing number of people every day. Since 1960, global consumption of grain and oilseeds has more than tripled and over the last 40 years has doubled. Experts say agricultural production may need to nearly double over the first half of this century to keep pace with demand. Clearly, it's something that will require an increased reliance on mechanization and productive equipment from industry leaders like John Deere.

The farming industry looks to John Deere for their effective high quality products that come with a variety of additional services, supports and solutions. One key solution that John Deere is taking advantage of to boost sales is precision agriculture technology.

Precision Agriculture: The Solution to Increase Land Yields

Precision agriculture is the future. It is a field that includes auto tracking, yield monitors, remote equipment monitoring, and data management. Essentially, advanced tools that make agriculture machinery more productive and farmers more profitable. In the not-too-distant future, precision agriculture may evolve to a point that farmers will be able to monitor, manage and measure the status of virtually every plant in the field.

Globally, Goldman Sachs estimates that advances in precision agriculture technology such autonomous farm vehicles that perform precision planting, fertilizing and irrigation could increase farm yields by 70 % by the year 2050.

By taking a page from Silicon Valley, Deere and Co. is making a major push to become the undisputed global leader in precision agriculture. John Deere is, investing in mobile apps that let farmers monitor the spacing between seeds and is connecting its machines with sensors that detect when they need to be repaired. Deere has acquired several agriculture tech start-ups over the last few years and has become a large tech incubator. The John Deere Technology Innovation Centre provides management training and resources to entrepreneurs that have new ideas for the field of precision agriculture and is currently experimenting with ideas like electric tractors and soil moisture trackers.

According to Samuel R Allen, chairman and CEO of John Deere:

“Precision farming is a big deal. It is an area almost certain to shape, if not define, the future of our industry. And it is an area in which John Deere fully intends to assert a leadership position.”

Operations

Deere’s net income of $1.5 billion in 2016 was a 5.72% net profit margin. The rest of the industry had a much lower net profit margin of 1.83%. The company achieved this by significantly reducing administrative expenses, including travel, advertising and indirect materials, by over 10 percent in the last year alone.

Despite slumped revenue and a weak global agricultural sector that will continue throughout much of 2017, John Deere has exceptional operating performance. From 2012 to 2016, total revenue dropped by 9,513 million dollars but net income only decreased by 1,540 million dollars. Operations are as efficient as ever and with a bright outlook on future sales, John Deere is positioned to perform very well in the long term.

It’s no accident that John Deere has grown into one of the world most admired businesses. The numbers may not look the best on paper but there is a very promising future for the company. With its feet on the ground and its eyes on the horizon, John Deere is ready to take on the challenges of feeding the world.